Improving the Management System of State-owned Assets

2015-07-28

By Ma Jun & Xiang Anbo, Research Team on "the Reform of the Management System of State-owned Assets" of Enterprise Research Institute of DRC

Research Report No 160, 2014 (Total 4659)

Improving the management system of state-owned assets1 is a crucial step to deepen the reform of state-owned enterprises. We suggest to follow the principle of separating decision-making, implementation, and supervision in the hope of improving governmental management system over state-owned assets, regulating governmental behaviors and identifying the responsibilities of relevant departments. By following the principle of separating ownership and management, we suggest to improve corporate governance, maintain enterprises' status of independent management in the market and rejuvenate the enterprises. Through the reform, a management system of state-owned assets should be established in which governmental administration is separated from enterprises' management, authorities match responsibilities, effective balance of powers is achieved and coordination in operation is realized. By doing so, we can, on the one hand, strengthen supervision and administration of state-owned assets, with managing the capital as the major task, and help state economy to gain more vitality; on the other hand, we can set up a dynamic adjustment mechanism for state-owned assets, for a better alignment with national strategy.

I. Basic principles

Adhering to the basic principles of problem-orientation, bottom-line thinking and gradual advancement, helps to develop practical scheme for the reform.

1. Problem-orientation.

Major problems in the management system of state assets should be the focus of the reform. Effective measures should be figured out for solving these problems. We should not deviate from the major problems and blur the focus of the reform, let alone falling into formalism, reforming for its own sake. At present, the primary problem of state assets management system is the poor vitality of state-owned enterprises as a result of administration. The second problem is the improper distribution of state assets due to the imperfect adjustment mechanism for state assets distribution. The third problem is the inadequate sharing of the profits from state assets as a result of imperfect allocation system of the profits. Therefore, the goal of this reform should be focused on rejuvenating state-owned enterprises, especially those in the competitive domains, and establishing a reasonable mechanism for adjusting state-owned capital and using the profits from operating state capital.

2. Bottom-line thinking.

China is in the period of transiting across different development stages, development modes as well as systems and institutions, with both the economy and social structure undergoing drastic changes. There are prominent problems of disequilibrium, disharmony and unsustainability in the country's development. The governance system and capability need enhancement, with all kinds of severe social conflicts. So we must stick to the bottom-line thinking in the reform. That is, the reform scheme for state-owned assets management system shall be embedded into the overall consideration of the country's development reform. We shall both actively promote the reform and prevent major risks. The first risk concerns national security. We shall not give up our control in some major domains before corresponding policies are formulated. The second risk concerns social stability. We shall not put forward a radical reform scheme before all related parties are braced for changes.

3. Gradual advancement.

The reform of state assets management system is an extremely hard task with over 150 thousand enterprises, assets worth of over 100 trillion and over 30 million of employees involved. The reform should proceed actively and step by step. During the process, short-term measures should be consistent with the long-term goals; top-level design with an overall consideration should be integrated with exploration and pilot projects in some domains; comprehensive deepening of the reform should be combined with orderly implementation. Based on the lessons of the past 30 years in the state owned enterprises (SOEs) reform and the scientific assessment of present management system, we shall identify the main problems, advance the reform in a well-organized manner and improve state assets management system step by step.

II. Basic structure of state-owned assets management system

In the light of domestic and foreign experience, an effective state assets management system should be composed of three parts: governmental departments, investment and management departments of state assets and industrial enterprises. They coordinate with each other, shouldering their corresponding responsibilities to ensure effective operation and management of state assets.

1. Governmental departments.

The governmental department is an indispensible part of state assets management system. State assets owned by all the people are invested in enterprises in the form of capital. That is, on behalf of all the people, the government fulfils the duty of an investor. In the meantime, the government is in charge of formulating public policies concerning the adjustment of state assets distribution and profit management of state assets. These functions can only be undertaken by governmental departments. And the government of a normal state is capable of doing so.

The governmental departments concerned should pay more attention to solve two problems—lack of due functions and unnecessary intervention. "Lack of due functions" indicates that state assets are not given a full play in the society and economy as their functions and distribution are not adjusted in time according to the country's different development stages and market changes. "Unnecessary intervention" means that nominally the State-owned Assets Supervision and Administration Commission of the State Council is an institution specially designed for managing state assets, while substantially it is a governmental department, which not only intervenes too much in the enterprises' management, but also undertakes many duties of administration. To be fair, since the State-owned Assets Supervision and Administration Commission was set up, the responsibilities of the investor have been determined, solving the problem of "many departments control, but none takes responsibility". This has played an important role in the rapid development of SOEs in the past decade. However, on account of some internal and external factors, the State-owned Assets Supervision and Administration Commission has increasingly expanded its due duties in administrating "personnel, affairs and assets", leading to a more serious mixing of governmental administration and enterprises' management.

The government is the institution to exercise the powers of stockholders, while serves as an administrative department which plays a leading role in state assets distribution and SOEs governance. Therefore, the reform of governmental departments is key to the reform of state economy. We should follow the principle of separating decision-making and implementation from supervision to improve the governmental management system of state assets, regulate governmental behaviors and identify the responsibilities of all relevant departments. We should follow the principle of separating ownership and management to improve corporate governance, eliminate improper administrative intervention and ensure enterprises' independent management in the market.

…

If you need the full text, please leave a message on the website.

1This paper discusses the central management system of state-owned assets. The local state-owned assets are different from those of the central government, which needs reform with taking local conditions into account.